What is it you want to accomplish by investing. Most
indicate retirement as
a goal, but there are other reasons to invest. College for the kids, house,
car, are just a few. There are a number of things you need to consider before
you define your plan and set your goals.
budget is probably one of the most important things you can do
for investing. If you don't budget you don't know what's coming in and
what's going out. Budgeting today is so simple. There are inexpensive
budget programs that you can purchase that make it fun, if that's possible. When you buy a PC you can get MS/Money program that is
bundled with the purchase of the PC.
Check it out, you might already have it.
Your age- If you are just starting out in your career and have 40 plus years
left in the workforce you can begin with your company's 401k or retirement plan,
depending on the size of the company. If you are middle-aged, you should already be investing in something. If you are nearing
retirement, there is still time. It is never too early or too late to invest. Investing doesn't have to be the stock market. Investing is anything that has a
return (money) from an asset.
For our purposes here, Investing can be stated as buying market
securities for the long-term. What is long-term is anybody's guess, but
something in the neighborhood of at least years. If you had a time horizon of,
let's say, ten years, then buying stock in a company normally should not be a
problem. The market and stocks tend to rise over periods of years. The risk of
buying stock in XYZ company (as long as XYZ is a good company) would be minimal
over the long-term.
Trading is a term, for our purposes here, that describes buying and
selling stock in a short period of time. That time can be minutes- to days- or
even weeks- but less than long-term. The risk can be very high depending on the
time frame and whether you need the funds.
|Period of Time
The risks in the above table is judgmental. If you hit the
market at the right time you can make money with very low risk and high reward.
The problem is you don't know when a rally, or a substantial rally will occur.
Another thing to consider is, do you have the money to gamble? The word
gamble is used to get your attention. If you decide to trade you may be gambling.
If you intend to invest, then the period of time you chose will make it a less of
Other items to consider:
Do you have a budget- You need to budget only for the fact of gaining
control. You need to know what you make and what you spend so that you can
invest or trade.
Do you have an emergency fund- An amount (normally 3 to 6
months of what you need to pay bills) that is set-aside in a savings account or money market. A set amount of money that is liquid and that you can tap
into if for some reason you need to. The very last thing an investor wants to do
is have to sell an investment.
Investing in the
stock market for beginners
Educational Resource Links
How to budget using spreadsheet and software programs